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TMI Blog2020 (9) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... he Telecom Operators and that there shall not be any re assessment. (ii) That, at the first instance, the respective Telecom Operators shall make the payment of 10% of the total dues as demanded by DoT by 31.3.2021. (iii) TSPs. have to make payment in yearly instalments commencing from 1.4.2021 up to 31.3.2031 payable by 31st March of every succeeding financial year. (iv) Various companies through Managing Director/Chairman or other authorised officer, to furnish an undertaking within four weeks, to make payment of arrears as per the order. (v) The existing bank guarantees that have been submitted regarding the spectrum shall be kept alive by TSPs. until the payment is made. (vi) In the event of any default in making payment of annual instalments, interest would become payable as per the agreement along with penalty and interest on penalty automatically without reference to Court. Besides, it would be punishable for contempt of Court. (vii) Let compliance of order be reported by all TSPs. and DoT every year by 7th April of each succeeding year. X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering such terms as it thinks fit. The licence issued under section 4(1) becomes a contract between a licensor and a licensee. This Court considered the provisions of the Telegraph Act in AUSPI (I) matter - (2011) 10 SCC 543 in this very case, thus: "37. A bare perusal of subsection (1) of Section 4 of the Telegraph Act shows that the Central Government has the exclusive privilege of establishing, maintaining and working telegraphs. This would mean that only the Central Government, and no other person, has the right to carry on telecommunication activities. x x x 39. The proviso to subsection (1) of Section 4 of the Telegraph Act, however, enables the Central Government to part with this exclusive privilege in favour of any other person by granting a licence in his favour on such conditions and in consideration of such payments as it thinks fit. As the Central Government owns the exclusive privilege of carrying on telecommunication activities and as the Central Government alone has the right to part with this privilege in favour of any person by granting a licence in his favour on such conditions and in consideration of such terms as it thinks fit, a licence gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel appearing for the parties at length with respect to the prayer made by the Central Government and the time frame for making the payment as per the order passed by this Court. During course of hearing, again an attempt was made to wriggle out of our judgment and orders, which were passed by this Court under the guise of reassessment and recalculation. That is not at all permissible. In view of decision, there is no scope of raising any further dispute with respect to any item or to raise fresh dispute. No dispute can be raised with respect to dues and they have to be paid. New round of litigation is prohibited. In the second inning, we have heard the same after remand of the issues to the TDSAT. Thereafter, there is no question of entertaining any kind of dispute with respect to the payment and dues worked out. No dispute shall be entertained. The calculations which have been given and the amount to be recovered at pages 180181 of M.A.D. No. 9887 of 2020 (application for modification) in C.A. No. 63286399 of 2015 are taken to be as final amount and there can be no dispute raised about it. No recalculation and selfassessment can be undertaken. The calculations are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the initiation of the proceedings under the IBC. Let all the documents of the companies viz. Aircel Group of Companies, Reliance Communication/Reliance Telecom Limited, Sistema Shyam Teleservices Ltd. and Videocon Telecommunications Ltd. relating to liquidation and orders passed in proceedings be placed on record within 10 days from today. We have closed the matter with respect to the prayer made for making the payment in installments and the offer made by the Government, the time frame thereto and how to secure the amount. The order is reserved on that aspect. However, we will hear the matter separately with respect to the companies under liquidation and test the bonafides of their action and how to ensure that the amount is recovered. Let all the documents be placed on record within 10 days from today and the matter be listed for hearing about these companies on the above aspect on 10.08.2020. Written submissions and the reply, if any, be filed on or before 07.08.2020." This Court wanted to examine the bona fides of the telecom service providers who have resorted to the process of insolvency, hence, invited them to file their response. Before the initiation of insolven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haring allows the operators to pool their respective spectrum for usage in a specific geographical area. The Central Government framed spectrum sharing guidelines on 24.9.2015. 7. The details of sharing arrangement between different telecom service providers have been given. 8. The "spectrum trading" allows parties to transfer their rights and obligations to another party. In the case of "spectrum sharing", the right to use spectrum remains with the respective telecom service providers, whereas in the case of spectrum trading, the right to use gets transferred from the buyer to the seller. Under spectrum trading guidelines, details of transactions which have taken place, are given. 9. Another aspect is that how much time is to be provided to the telecom service providers to pay AGR dues. The Union of India on the representation made by the telecom service providers and Indian Banks' Association, has decided to provide the facility of making payment in instalments within 20 years. 10. The following three questions arise for consideration: (1) Whether spectrum can be subjected to proceedings under the Code? (2) In the case of sharing, how the payment is to be made by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of right to use the spectrum, both the licensees shall give an undertaking that they are in compliance with the terms and conditions of the Guidelines for spectrum trading that is seller and buyer both. In case terms and conditions for spectrum trading are not fulfilled, the Government will have the right to take appropriate action including annulment of trading arrangement. (v) As per Guideline Nos. 11 and 12 of the Guidelines of 2015, the seller has to clear the dues. After the trading date, the Government has the discretion to recover the amount from the seller or buyer, jointly or severally. (vi) The permission was sought to trade the licence; however, the Government of India, DoT, declined it because arrears have to be paid, and other conditions were not fulfilled. After that, insolvency proceedings were initiated, which were not permissible concerning the spectrum given provisions contained in Section 18 of the Code. (vii) National Company Law Tribunal (for short, 'the NCLT'), Mumbai vide order dated 27.11.2019, held that licence is an asset of State over which the corporate debtor has no right of ownership. The above argument of the State Government was acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 18 of the Code. In the resolution plan, selling the right to use the spectrum to some other company could not have been made. A corporate debtor cannot create any third party right in any manner whatsoever. Against the order dated 9.6.2020 passed by the NCLT approving the resolution plan of UVARC, DoT has filed a petition before the NCLAT relating to Aircel Group. Guidelines are statutory and binding. Aircel Licensee has defaulted in making payment of Deferred Spectrum Auction. (xiii) In the case of RCOM, W.P. (C) No.845 of 2018 was filed under Article 32 of the Constitution of India for closure/quashing of the CIRP initiated against it. After that, payment was made to M/s. Ericsson India Pvt. Ltd, who initiated the proceedings under the Code. RCOM has sought NOC to trade Reliance Jio Infocomm Limited (for short, 'RJIL'). DoT informed it on 14.12.2018 that the Government couldn't give the NOC for trading. This Court decided the proceedings on 24.4.2019. Thereafter, the Board of Directors of RCOM decided to continue with the proceeding under the Code and, decided to withdraw the appeal from NCLAT. RCL/RTL defaulted in payment of various deferred spectrum auctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been shown as an intangible asset. Without telecom licences and spectrum, there would be no hope of reviving Aircel entities. (ii) Clause 6 of the Licence Agreement deals with the restrictions of transfer of licence by either directly or indirectly without the prior written consent of the licensor. It can be transferred on fulfilment of certain conditions. (iii) Reliance has been placed on Consultation Paper dated 7.3.2012. Its licence/spectrum is considered an intangible asset, and in the Guidelines for the Reporting System on Accounting Separation Regulations, 2016, the right to use spectrum is again shown as an intangible asset. The Indian Accounting Standards38 has also been referred to indicate that an asset is a resource controlled by the entity for further economic benefits. The spectrum and licence being assets of the telecom company are not assets owned by a third party under a trust. (iv) The licence and spectrum of Aircel Entities are held in security by the lenders in terms of the TPAs to which the DoT is also a party. In the resolution plans, DoT acted as an operational creditor. The NCLT asked to take the approval of the DoT for the transacting spectrum. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of lending money for the betterment of the national economy, in the same manner, the Government is in the business of spectrum. As per Clause 6.3 of the Licence Agreement, licence can be transferred subject to fulfilment of the conditions agreed between the licensor, licensee, and the lenders. (iv) The right to use spectrum is an asset of the corporate debtor. Paras 8.4 and 8.5 of the Insolvency Law Committee Report have been referred to. Revocation of Licences, permissionbased on past dues, is prohibited under Section 14 after the moratorium is created. Current dues have to be paid during the moratorium period. He has referred to Sections 3(27) and 14(1). (v) The provisions of the Code have to prevail. The Government has entered into a pure business transaction by granting a licence and taking fees against the grant. The spectrum is a raw material for telecom companies. If the spectrum's licence is terminated, the resolution professional will find it difficult to run the company as a going concern. DoT is an operational creditor. AGR dues are contractual dues and cannot have precedence over the dues of secured creditors. He has referred to Section 53 to contend tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elegraph authority of any power so delegated shall be subject to such restrictions and conditions as the Central Government may, by the notification, think fit to impose. (3) Any person who is granted a license under the first proviso to subsection (1) to establish, maintain or work a telegraph within any part of India, shall identify any person to whom it provides its services by- (a) authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016); or (b) offline verification under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016); or (c) use of passport issued under Section 4 of the Passports Act,1967 (15 of 1967); or (d) use of any other officially valid document or modes of identification as may be notified by the Central Government in this behalf. (4) If any person who is granted a license under the first proviso to subsection (1) to establish, maintain or work a telegraph within any part of India is using authentication under clause (a) of subsection (3) to identify any person to whom it provides its services, it shall mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dues are wiped off. Guideline No.12 is also assumed to be of significance in case spectrum is subjected to insolvency proceedings, which must be considered. 19. It is also required to be examined that when Government has declined the permission to trade and has not issued NOC for trading on the ground of nonfulfilment of the conditions as stipulated in the Licence Agreement, the spectrum can be subjected to resolution proceedings which will have the effect of wiping off the dues of the Government, which are more than ₹ 40,000 crores. Whereas the dues of the Banks are much less. Whether obtaining the DoT's permission and its approval to the resolution plan would be a substitute for Trading Guideline Nos.10, 11, and 12 ? 20. A question also arises of bona fide nature of the proceedings under the Code. In the backdrop facts of the cases, question also arises whether spectrum licence subjected to proceedings under the Code, and it overrides the provisions contained in the Indian Telegraph Act, 1885, Indian Wireless Telegraphy Act, 1933, and Telecom Regulatory Authority of India Act, 1997. 21. In view of the fact that the licence contained an agreement between the lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsee of the past AGR dues of the original licensee is concerned, that spectrum sharing is permitted and approved by the Sharing Guidelines dated 24.09.2015. The Parliament has approved spectrum sharing as part of "National Telecom Policy, 2012". However, DOT issued and approved the final guidelines in the year 2015. Spectrum sharing is a policy that permits the sharing of radio access network equipment of operators. Single radio network equipment is used to provide services by two operators using both the entities' spectrum. As per Spectrum Sharing Guidelines of DoT, (i) it is a prerequisite that both operators sharing spectrum need to have spectrum in the same band and the same licenced area; (ii) it is also necessary that both operators have a network in the same geographical area; and (iii) leasing of the spectrum is not permitted under the policy. By sharing the radio network equipment, two operators use their spectrum and create their respective businesses' capacity. Liability to pay necessary AGR and licence fee remains with the respective companies. Even the DoT in its affidavit and compliance of the order dated 14.08.2020, stated as under so far as the spectrum shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rewith and marked as ANNEXURE - T2. 6. In case of sharing of spectrum both the service providers [sharers] must be in the same band and in the same service area. To illustrate "it may be pointed out that if there are two service providers holding 100 units of spectrum each in the same band and in the same service area they can share spectrum of each other mutually. The Spectrum Usage Charges [SUC] will be considered for 100 units for each of the TSPs and both will have to pay SUC for their entire spectrum holding (100 units each) in that band and in that service area. 7. With regard to AGR dues for two TSPs sharing spectrum, the following scenario emerges: i. In case of sharing, the Spectrum does not change hands. Both TSPs simultaneously use and have access to the spectrum held by each. ii. As per the sharing arrangement, each of the TSPs will continue to make payment of AGR dues arising for the spectrum that each holds. iii. However, due to the additional spectrum which each TSP gets to use, the AGR based dues (SUC) are assessed at a higher rate for each of the TSPs. There is an addition/increase by 0.5% in the Spectrum Usage Charge rate, applied separately on both TSP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um trading, the right to use gets transferred from the buyer to the seller." On going through the entire Sharing Guidelines, it does not stipulate anything about the past dues of the sharing operators. In the case of sharing spectrum usage charges, the rate of each of the licensees post sharing shall increase by 0.5% of adjusted gross revenue. Sharing Guidelines dated 24.09.2015 read as under: "No. L14006/04/2015NTG Government of India Ministry of Communications & IT Department of Telecommunications WPC Wing, 6th floor, Sanchar Bhawan, New Delhi Dated: the 24th September, 2015 Subject: Guidelines for sharing of Access Spectrum by Access Service Providers. National Telecom Policy, 2012 envisage to move at the earliest towards liberalization of spectrum to enable use of spectrum in any band to provide any service in any technology as well as to permit spectrum pooling, sharing and later, trading to enable optimal utilization of spectrum through appropriate regulatory framework. After considering the recommendations of TRAI on spectrum sharing, the Government has decided to allow sharing of access spectrum as per guidelines given below: (1). Spectrum sharing shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny coercive action, in the interim, sharing of spectrum in such cases will also be permitted subject to submission of a bank guarantee for an amount equal to the demand raised by the department for one time spectrum charge pending final outcome of the court case. (iii) In case of proposed sharing where one Licensee has spectrum acquired through auction/trading or liberalized spectrum and the other has spectrum allotted administratively, sharing is permitted only after the spectrum charges for liberalizing the administratively allocated spectrum are paid. Further, in case of spectrum acquired in auction held in March 2013, differential amount as indicated in para 7(i) above shall be payable in respect of 800 MHz band. (9) The use of technology shall be governed by the terms and conditions of respective Notice Inviting Application (NIA)/license. (10). Both the licensees will be individually and collectively responsible for complying with the sharing guidelines, including interference norms. (11). Spectrum sharing will be restricted to sharing by only two licensees subject to the condition that there will be at least two independent networks provided in the same band. (12). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines from time to time as it may deem fit. Sd/ (P S M Tripathi) Assistant Wireless Adviser for and on behalf of President of India." 25. According to the DoT and so stated in the affidavit in compliance of order/directions dated 21.08.2020, AGR is not calculated bandwise, but from the total revenue earned by the TSP using the entire spectrum (both shared and not shared). According to DoT, in case of sharing of spectrum, there is an increment of 0.5% in SUC rate, and both TSPs pay this incremental SUC on their respective AGRs if they are sharing spectrum. Both the TSPs (sharers) are required to pay this SUC on their respective AGRs. Even in the case of sharing spectrum, the liability of the said operator would be to the extent of using the said spectrum only, and the liability of the sharing operator would be to the extent of the remaining spectrum used by it. Therefore, there shall not be any liability of the said operator with respect to payment of the past dues (post shared) of the sharing operator - licensee. Even according to DoT also, both the TSPs (sharers) are required to pay the SUC on their respective AGRs. Learned counsel appearing on behalf of the Reliance Jio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e action which interalia may include annulment of trading arrangement. (11). The seller shall clear all its dues prior to concluding any agreement for spectrum trading. Thereafter, any dues recoverable up to the effective date of trade shall be the liability of the buyer. The Government shall, at its discretion, be entitled to recover the amount, if any, found recoverable subsequent to the effective date of the trade, which was not known to the parties at the time of the effective date of trade, from the buyer or seller, jointly or severally. The demands, if any, relating to licenses of seller, stayed by the Court of Law, shall be subject to outcome of decision of such litigation. (12). Where an issue, pertaining to the spectrum proposed to be transferred is pending adjudication before any court of law, the seller shall ensure that its rights and liabilities are transferred to the buyer as per the procedure prescribed under the law and any such transfer of spectrum will be permitted only after the interest of the Licensor has been secured." Para 11 of the Spectrum Trading Guidelines was further clarified vide O.M. dated 12.05.2016. Certain telecom operators raised specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ller were also known. Therefore, on a joint reading of para 11 of the Spectrum Trading Guidelines dated 12.10.2015 read with O.M. dated 12.05.2016, the seller's dues prior to the concluding of the agreement/spectrum trading shall not be upon the buyer. 29. It is clear that in the case, which was decided by this Court relating to AGR dues, respondents were the parties, and they were litigating with respect to the definition of AGR in the second round of appeal filed in 215 before this Court. Each of them was aware that the dispute as to the definition of AGR was pending in this Court. Thus, it is apparent that it was known to the parties that AGR dues to be finalised as per the decision of this Court in a pending matter, and lis was pending for the last 20 years. The liability cannot be escaped as specified in the Trading Guidelines to the extent that the seller or buyer is liable. They have to pay the AGR as per the judgment rendered by this Court. The purchasers who are not seller or buyer, shall have to pay the dues to the extent they are liable under the Guidelines, as discussed above. It was stated that they have paid dues as per the selfassessment or, in some cases, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation on the subject of distress in the Telecom Sector and Ease of Business. The letter highlighted the issues affecting the Telecom Sector and resultant implications on the banks lending to the Telecom Sector along with suggestions for consideration. (e) Disruption of tax and nontax revenue on account of licence fee(LF), spectrum usage charges (SUC) and Goods and Services Tax (GST) and loss of revenue on account of spectrum deferred instalments; (f) Locking up of valuable spectrum in Corporate Insolvency Resolution Process (CIRP); (g) Major loss of direct and indirect employment; (h) Cascading negative impact on other sectors of the economy; (i) Foreign Direct Investment (FDI) sentiment will be adversely affected; (j) The closure of one or more TSPs also adversely impacts the digital connectivity in the country. Ecommerce, ebanking, ehealth, etc., all part of egovernance are affected; (k) This will have an adverse impact in rural areas, particularly Aspirational Districts, and the spread of digitization in backward regions of India. 32. In this regard, a letter dated 15.2.2020 had been written by the Indian Banks Association, adumbrating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unpaid amount, penalty, and interest on penalty in relation to the past dues as on the date of the judgment of the Hon'ble Supreme Court (arising due to the said judgment of the Supreme Court) will not be levied beyond the date of the said judgment, and the NPV will be protected using the discount rate. However, the TSPs shall continue to be liable for interest, penalty, and interest on penalty for unpaid dues of LF and SUC which arise prospectively after the date of judgment of the Hon'ble Supreme Court (24.10.2019). 1.2 Change in amount of past dues arising from the AGR judgment (24.10.2019), if any, determined after reconciliation between TSPs' selfassessment and DoT's assessment/calculation, be added to/adjusted against the payable instalment amounts of the TSP on the same basis as given in paragraph 1.1 above." 34. A prayer has also been made to pay the remaining dues through annual installments spanning over 20 years. For any lapse, a provision has been made to protect the net present value as per the order passed by this Court up to the date of judgment and the dues thereafter, to be realised using the discounted rate of 8%, which is based on one marginal MCLR rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. Pursuant to the Court's directions, the matter has been reexamined and considering the representations filed by PSUs. It is stated in the affidavit dated 18.6.2020 that non telecom public sector undertakings are nontelecom entities involved in providing services such as power transmission, oil and gas exploration, and refining, Metrorail service, etc., and that they are not into the business of providing mobile services to the general public. They are not holding Access Service Licence (ASL). The revenue received by nontelecom public sector undertakings under the head of 'telecom services' forms a very negligible and a small portion and does not form part of the total revenue, e.g., 0.0002% for GAIL, 0.00028% for DMRC and 0.001% for Oil India, etc. DoT has decided to withdraw the demands raised for licence fee based on nontelecom revenue from the nontelecom public sector undertakings, which are M/s. Powergrid, GAIL, Oil India Ltd., DMRC, which constitutes about 96% of the demand regarding nontelecom PSUs. In this regard orders have been issued on 13.7.2020 and 14.7.2020. 38. Resultantly, we issue following directions: (i) That for the demand rais ..... X X X X Extracts X X X X X X X X Extracts X X X X
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